Dubai's Virtual Assets Regulatory Authority (“VARA”) Licensing Process

Background

VARA has recently updated and provided more information on their licensing process. The licensing process now consists of separate options for three different categories of applicants: current minimum viable product (“MVP”) applicants, existing legacy virtual asset service providers (“VASPs”) and new applicants. All three categories of applicants are subject to either the MVP process or the full market product (“FMP”) process. All VASPs currently undertaking or planning on undertaking regulated activities must apply for a regulated license with VARA.

The regulated activities

Entities aiming to undertake the following regulated activities in relation to virtual assets (“VAs”) are subject to the licensing process:

Advisory services;
Broker-dealer services;
Custody services;
Exchange services;
Lending and borrowing services;
Payments and remittances services; and
VA management and investment services.

The licensing process

There are three categories of license applicants, each subject to a different licensing process:

Category A - Current MVP applicants

The MVP process is as follows: applicants must firstly attain a provisional permit (“PP”), followed by a preparatory license (“PL”), and finally concluding with an operating license (“OL”).
Applicants currently undergoing the MVP process will be advised by VARA to either continue the process or transition to the FMP process.

Category B - Existing legacy VASPs operating in Dubai

All existing legacy VASPs (not currently undergoing the MVP process) are subject to the FMP process and are required to do one of the following where applicable:
- Apply for an FMP regulated license.
- Apply for an FMP registration. This applies to VASPs who are undertaking activities that fall under the remit of VAs and its related activities, however, the nature of the activities may not require full regulatory supervision from VARA. In this case, while a regulated license is not required, registration is still mandatory for the VASP to be able to operate in the market.
- Attain a no objection certificate from VARA to provide services and products which (i) do not fall under the VARA remit but are either permitted to be undertaken as long as they don’t breach any other Emirate laws/rules or (ii) are determined to be low/minimal risk at the time of operation.

Important deadlines for legacy VASPs who have not previously engaged the MVP process:
- Such VASPs are required to complete the Information Disclosure Questionnaire (“IDQ”) by the 31st of March 2023.
- Upon review of the IDQ, VARA will indicate any next steps the VASP must take. VASPs required to apply for an FMP regulated license or to be FMP registered under this category, must conclude their applications by the 31st of August 2023.
- All VASPs who have not submitted an IDQ will be required to cease any regulated activities from the 31st of May 2023.

Category C - New applicants seeking a regulated license post the 7th of February 2023 (when the VARA FMP regulations were released)

New applicants can begin the application process through their commercial licensor (Dubai’s Department of Economy and Tourism or free zone authorities excluding DIFC) or directly through VARA:

Complete and submit the IDQ to VARA.
Subject to VARA’s initial approval, complete operational setup and establishment/incorporation processes where required.
Submit an FMP regulated license application to VARA.

Exceptions to obtaining a regulated license

The following are exempted from obtaining a license:

Employees facilitating their licensed employers; and
Select licensed business professionals.

Mandatory registration for large proprietary traders

Any entity actively investing in its own VA portfolio at or above USD 250 million during a rolling 30 calendar day period must register with VARA prior to investing or no later than 3 days after investing the amount.
This registration does not constitute a regulated license.
This entity cannot accept or trade VAs belonging to another entity.

Voluntary registration for other market participants

Any entity looking to obtain a commercial or free zone license from Dubai to carry out the following activities can also voluntarily register with VARA:

Providers of technology services relating to distributed ledger technology.
Entities actively investing in their own VA portfolio.

This registration does not constitute a regulated license.

Licensing fees

Regulated activity	License application fee [for one regulated activity only]	License extension fee [for each additional regulated activity]	Annual supervision fee [for each regulated activity]
Advisory services	AED 40,000	50% of lower license application fee[s]	AED 80,000
Broker-dealer services	AED 100,000	50% of lower license application fee[s]	AED 200,000
Custody services	AED 100,000	50% of lower license application fee[s]	AED 200,000
Exchange services	AED 100,000	50% of lower license application fee[s]	AED 200,000
Lending and borrowing services	AED 100,000	50% of lower license application fee[s]	AED 200,000
Payments and remittances services	AED 40,000	50% of lower license application fee[s]	AED 80,000
VA management and investment services	AED 100,000	50% of lower license application fee[s]	AED 200,000